Enhancing the transparency of non-GAAP financial measures can help users better understand past performance, read our Point of view to find out more.
Companies often disclose non-GAAP financial measures to provide additional insight into their business. The comparability of non-GAAP financial measures varies from one industry to another, as well as from one company to another. In addition, a lack of transparency regarding their determination, along with inconsistency in how the measures are calculated may limit their efficacy. Further, the subjectivity inherent in how non-GAAP financial measures are calculated could make them susceptible to bias or misinterpretation without proper context and explanation.
When presenting non-GAAP financial measures, it is important to give equal or greater prominence to the most comparable GAAP measures, ensure that appropriate disclosures are provided, accurately label the non-GAAP measures and identify an adjustment as non-recurring only if that is the case.
Non-GAAP financial measures are most effective when they are accompanied by clear and transparent disclosure of what is included or excluded from the measure and the supporting rationale. A robust discussion of how management uses non-GAAP financial measures, if applicable, and the context in which they should be considered increases their usefulness.